It was reported that Financial Supervisory Service(FSS) of South Korea had signed a MOU on Government Guarantees of Banks’ External Debt with 18 domestic banks on November 14.  The MOU was comprised of Part 1 on “Government guarantees of banks’ external debt” and Part 2 on “Extending support to the real economy and management rationalization”.  SC First Bank Korea and Citibank Korea signed only Part 2 of the MOU with the FSS.

The MOU is to increase credit lines by improving foreign-currency liquidity, move forward with the disposition of non-core foreign-denominated assets, and diversify sources of banks’ foreign liquidity. Contingency plans were also included to prevent risk to the guarantee.

To provide relief to holders of household debt, the maturity date and the interest-only and payment-option will be extended. Borrowers wanting to convert their variable interest rate loans to fixed will have their early redemption fees waived.

With respect to executive compensation, salaries and stock options will be reduced voluntarily anywhere between 10~30%. The focus of executive pay structures will be redirected from short to longer-term performance results.  Each bank will aim for the BIS capital adequacy ratio of 11~12% according to the
characteristics of each respective bank while maintaining appropriate dividend outlays.

The FSS will conduct daily or monthly reviews in accordance with each respective provision to check if banks are in keeping with the terms of the MOU.  Reviews that are found to be inadequate could lead to guarantee reductions and/or fee adjustments. The FSS expects to keep the National Assembly abreast of the latest developments through briefings every other month.

(Source: FSS_press_release: http://www.fss.or.kr)

© 2008 Wonil Chung, a Korean Banking Lawyer/Chung & Partners, a Korean Banking Law Firm.  All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.